The Organisation for Economic Co-operation and Development (OECD) released its 2014 deliverable on Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances) under the base erosion and profit shifting (BEPS) Action Plan as part of a release that included six other reports addressing other aspects of the BEPS Action Plan.
Read BEPS Action 6 on the OECD website.
The proposed changes to the OECD Model Tax Convention presented in the recommendations (BEPS Action 6 deliverable) reflect the agreement of the delegates of the OECD member countries and G20 countries that states incorporate in their treaties sufficient safeguards to prevent treaty abuse, including treaty shopping.
Given the variety of approaches to limit treaty shopping, the BEPS Action 6 deliverable recommends alternative model provisions that may be adapted based upon the specificities of individual countries and the circumstances of the negotiation of bilateral treaties.
The BEPS Action 6 deliverable recognizes that further work is needed with respect to the precise contents of the model provisions and related commentary, in particular the limitation on benefits (LOB) rule and the policy considerations relevant to treaty entitlement of collective investment vehicles (CIVs) and non-CIV funds.
The BEPS Action 6 deliverable differs from the Action 6 Discussion Draft in several respects.
First, the BEPS Action 6 deliverable recommends at a minimum the inclusion in a tax treaty ofeither:
The BEPS Action 6 deliverable’s recommendation to allow states the ability to choose between the PPT and the LOB rule supplemented by domestic anti-abuse rule appears to be a significant improvement from the Action 6 Discussion Draft which recommended the inclusion of both the LOB rule and general anti-abuse rule (in the form of a PPT). As a PPT and / or main purpose test may be viewed as subjective, vague, and adding uncertainty to a treaty, this is expected to be viewed as a welcomed change.
Also, the committment to address whether CIVs and non-CIV funds are qualified persons will be appreciated by those states that have a large number of CIVs and non-CIV funds investing in cross-border stocks and securities on behalf of residents of third states.
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